Global equities gained 4.8% in dollar terms during the first quarter with the MSCI AC World Index reaching its highest level since inception in 1988. YTD the asset class is up over 6% with the US and Tech sector well known contributors. Following a poor first quarter, EM returns have improved (+5.6% in Q2) as the economic outlook in China surprised positively, stability in the Russia/Ukraine stand-off emerged and a new Indian government with a majority mandate was well received by the market.

For the quarter the Fund gained 4.3%, underperforming by half a percent. While disappointing, we managed to beat global and SA peers by 60bp and 30bp respectively. Having a beta of 0.97 detracted and a 3% cash holding also proved unhelpful in a rising market.

Unfortunately country selection hurt as we were underweight Canada, which was one of the best performers (+10%) and sticking with North America, our 8.5% underweight in the US detracted. Conversely sector allocation has been good this year. Healthcare and Energy are our two largest overweight's so from above, positioning has contributed. Similarly our biggest underweights are in Consumer Discretionary and Financials which were two of the worst performers. Marathon has lagged this year due to their large overweight in Japan and security selection within the Tech sector. Veritas lagged this quarter for similar reasons i.e. stock picking within Technology accounted for the lion's share of underperformance. Selection within Telecommunications, specifically Vodafone, also detracted. Aberdeen was the best performer in our line up during the second quarter. The portfolio benefitted from their strong relative returns due to them having an almost double overweight position in Energy and virtually zero allocation to consumer discretionary. Stock selection within the Capital and Fidelity mandates has disappointed of late. We're looking at restructuring the latter portfolio and to this end are seeing if it would be possible to grant the manager extended powers via their FAST product but at the same time keeping our total portfolio compliant with the Fund rules. Aforementioned is subject to sign off from legal.

On the passive side, our value weighted exposure marginally outperformed as the decision last quarter to increase the allocation to emerging markets within the Alliance Bernstein mandate paid off. As we step into the third quarter, there's no reason to expect sudden growth acceleration. The World Bank has just reduced its global growth forecast and we see major economic blocs growing at or below their potential rates. In other words, the global business cycle seems to have turned flat, with no prospect of either a boom or bust in sight.

Global equities returned 1.3% in dollar terms during the first quarter. EM underperformed again with Russia (-14.4%) being the obvious drag following the conflict in Crimea. From a sector perspective Utilities (+7.3%) led the way. In contrast, Retailing (-3.4%) underperformed. Energy and Materials (consistent laggards for a few years) matched the broader index - raising hope the worst is over for some cyclical companies. Good news for stock pickers was dispersion within sectors being unusually high. Finally, small caps led the charge again during the period under review after outperforming significantly in 2013 while value as a style beat growth.

Security selection within Technology helped us outperform however this was partly offset by stock picking in Financials. The portfolio's largest sector overweight in Healthcare (one of the best performers) at the expense of Consumer discretionary (which was one of the worst) contributed to returns. From a regional perspective the portfolio's significant underweight in North America clearly had an adverse impact. Fortunately however, the selection effect more than made up for negative asset allocation.

The overweight to EM, which underperformed their DM counterparts, hurt the Capital portfolio. Given relative valuations we've increased our allocation to the asset class within the Alliance Bernstein mandate. Marathon also lagged as the positive effects of stock selection in Europe and Japan were offset by the overweight to Japan and underweight to the US. We increased our weight in Aberdeen during February and benefitted from their strong relative returns (+2.7%) during the second half of the quarter. The Fidelity ACWI mandate also outperformed but this was offset by the small cap mandate within the composite which underperformed by almost 2.5%. Veritas was our top performer in the first quarter as they outperformed by 3.6% - largely thanks to their two and a half times allocation to Healthcare. On the passive side, our value weighted exposure picked up nicely in March as there seems to be a rotation into this style - we're convinced this is the most attractive factor exposure for our Fund (rather than momentum or small cap for instance).

Looking forward we worry the withdrawal of stimulus will mean further volatility with the risks skewed to the downside. On the upside, central bankers seem determined to keep interest rates. Our portfolio maintains an overweight position in Europe (+5%) with a corresponding 10% underweight to the US. On aggregate the Fund is underweight large caps and has a lower beta than the market. This is due to sector positioning where the Fund's biggest overweight remains in Healthcare (+3.1%) at the expense of Financials (-4.4%).